Realize the full value Use IT to drive results in pharma mergers, acquisitions, and divestitures. Viewpoint

Transcription

1 Realize the full value Use IT to drive results in pharma mergers, acquisitions, and divestitures Viewpoint

2 Table of contents M&A activity increasing 3 The pendulum swings 3 How IT can help this crucial strategy 4 Partnership considerations 5 Conclusion 6 Author 7

3 Mergers and acquisitions are increasing in the pharma sector. Can your organization keep up? DXC Technology has a few ideas about how IT can speed up your success. Mergers and acquisitions can be an intelligent business lever for life sciences firms opening a path for strategic growth, extending market reach, and gaining competitive advantages. M&A activity increasing Merger-and-acquisition (M&A) activity is showing a significant upsurge in the life sciences sector. The Thomson Reuters 2015 Mergers & Acquisitions Review states that, Driven by pharmaceutical M&A, M&A deal making in the healthcare sector totaled $672.9 billion during 2015, an increase of 71 percent compared to A number of those new deals were designed to take advantage of tax inversions, such as lower non-u.s. corporate tax rates. Others were in pursuit of expanded product pipelines, extended market reach, or to eliminate assets no longer aligned to the firms strategies. Yet, as proven by the sector s uneven history in M&As, simply making deals is no guarantee of success. Poorly conceived transactions can be costly and time-consuming. They often divert attention from core competencies and can actually hinder vital research and development (R&D). Problems are compounded when technology integration efforts are delayed or inadequate, causing even the best merger or divestiture project to struggle. In this viewpoint paper, DXC examines the current resurgence of M&A activity in the pharmaceutical industry. We review the three key IT elements that most often accelerate or hinder those vital transitions. The pendulum swings In an extensive report, the Wharton School of the University of Pennsylvania describes the major consolidation phase now under way in the global pharmaceutical industry. 1 In 2014, more than $200 billion in value is in play, constituting some 14 announced deals in just the first five months of the year, compared to just 10 in all of The publicly stated goals of many of those transactions are to give pharmaceutical firms access to new drugs, save money, and gain synergies. Ideally, life sciences organizations should be able to easily acquire and integrate companies without disrupting their businesses or affecting key customers. Yet, as veterans of the pharma sector know all too well, it does not always work that way. Ten or 15 years ago, many large life science companies had a vision of expanding the scope and reach of their businesses through diversification into areas not well aligned to core competencies. Many bought health-related firms, as well as crop protection, animal health, and small biotech organizations. Most invested heavily in research and development, often with disappointing results. 1 Wharton School of the University of Pennsylvania, Trying to Recapture the Magic: The Strategy Behind the Pharma M&A Rush, May 28, 2014 Health Economics Europe, India, North America. 3

4 Industry observers say that the previous M&A push was somewhat less scientific in terms of analysis and strategic integration. Many see the current M&A push as a clear corrective to those earlier missteps. While replenishing drug pipelines remains a key goal, the focus of today s divestitures, asset swaps, and acquisitions is often on a return to core strengths and capabilities. Behind this realignment of the verticals within life sciences is a growing awareness that companies should focus on higher-margin business and an optimized risk balance in their portfolios. The 2014 Wharton School analysis acknowledges the shift back toward core competencies, while warning pharmaceutical companies about another all-too-common risk inadequate post-merge integration. Robust IT planning provides better visibility into interdependencies among functions, processes, and assets enabling life sciences organizations to better analyze and manage risk. Whether they are planning their first M&A effort, or if they have managed a number of substantial transactions, forward-looking chief information officers (CIOs) understand these to be complex logistical transformations. They require close attention to detail across the entire business model. The technology challenges can be substantial: consolidation of numerous systems, addressing rigid core legacy systems in one or more companies, and managing redundant applications and fragmented data stores. When done well, integration eliminates cost and redundancies, while adding efficiencies and measurable value. Poor integration, on the other hand, can reduce employee productivity and customer satisfaction, while endangering corporate security, growth, and brand value. To realize the full potential of any M&A effort, it may help to examine in detail how information technology impacts those transformations. How IT can help this crucial strategy Technology integration can help, or hinder, a complex M&A effort. Less-than-ideal IT planning adds time and complexity to any integration effort. Robust IT planning provides better visibility into interdependencies among functions, processes, and assets enabling life sciences organizations to better analyze and manage risk. Because information technology can impact the long-term value of any enterprise, it is worth examining IT s role in any major transformation. Because technology is a linchpin to most business processes, insufficient planning can lead to unexpected system restrictions, dissatisfied customers, and lower user acceptance of combined or separated systems. Poor alignment between IT and the larger life sciences business can and will reduce the overall return on any M&A investment. When technology is considered at strategic and tactical levels, pharmaceutical companies can improve their governance and control of any deal. Solid IT provides the metrics needed to drive quality and reliability, and to comply with legal and regulatory requirements. Strong IT planning enables pharmaceutical firms to adopt an enterprise-wide transformation model, rather than a discrete and less-effective, project-by-project approach. Together, those technology-driven capabilities position companies to 4

5 reduce uncertainties, accelerate deal lifecycles, and focus their energies on higher-level, value-oriented outcomes. IT can affect M&A efforts in three critical ways. One: Immediate technology requirements When an acquisition or divestiture happens, those transactions are often in the works for months but when they are announced, most are followed by an intense flurry of legal, business, and technology activities. During those crucial early weeks, a number of small but vital technology steps can greatly impact the eventual success or failure of the entire effort. Things such as setting up compatible accounts, common address books, and a working call routing system may seem like tactical details. Yet they are the foundation for communication, collaboration, and strategic gains. Slightly higher-level activities also require IT-oriented due diligence, including compatible part and material designations, transactional models, and vendor or customer management systems. Whether a CIO is tackling a first-ever major integration challenge, or is the veteran of numerous M&A events, current technology can vastly improve the outcome of any deal. Cloud and as-a- Service efficiencies, federated capabilities, and other still-emerging technologies such as new data integration hub technology provide the flexible, scalable systems needed to handle a major transformation. Putting the appropriate systems and architecture in place now, particularly as part of migration-to-cloud type models, can position a pharma organization to react more quickly and effectively to the unique IT demands of an M&A event. At the same time, a well-planned technology strategy can ease future challenges of separation and integration. Two: Cost savings IT groups are typically expected to deliver much of the highly touted expectations for cost-efficiencies that result from M&A events. The early focus is naturally on operations, financials, and cultural change management. Forward-looking companies should also consider information technology early in the integration or separation process. When IT is not sufficiently prioritized, the time and cost of integrations can be miscalculated, and those costs often exceed planned expenses. By standardizing the approach and supporting tools, IT-oriented integration or separation reduces current transactional and long-term ownership costs thereby increasing the overall value of any deal. Life sciences firms gain measurable value by reducing the cost of operational set-up and integration, and by leveraging nimble as-a-service models for business processes, applications, and infrastructure. Advanced analytics and data management can provide unprecedented insights into costs, revenue, and value across disparate organizations. Modernized IT systems also can increase visibility and control over discretionary and nondiscretionary spending, enabling firms to better prioritize investments while reducing the risk of acquisitions, divestitures, or joint ventures. Three: Long-term value Because information technology can impact the long-term value of any enterprise, it is worth examining IT s role in any major transformation. Most pharmaceutical acquisitions are driven by the desire to own a promising drug or other intellectual property, or to leverage a demonstrably successful R&D program, a strong pipeline management system, or some other valuable process. Companies cannot have two of everything, so optimization is often a key IT objective. Reverse- engineering systems require speed, but care must be taken not to damage critical business processes. At the same time, concerns about making a wrong decision can sometimes lead to analysis paralysis during a key transition. Organizations must confront immediate options, and cannot wait two or more years to make those vital technology decisions. The key is to have an IT environment and an infrastructure that are flexible enough to drive near-term results, and long-term success. Partnership considerations As noted, one of the key questions facing any CIO is whether the organization has the in-house expertise to handle an M&A event, and to gain maximum benefit from the transition. Given the natural complexity of these efforts and the time and resource constraints under which most are undertaken most pharmaceutical firms work with external partners to handle at least parts of a merger, acquisition, or divestiture. 5

6 Ask the tough questions When considering a complex M&A challenge, C-level pharmaceutical leaders should ask: Going forward, which legacy systems or technologies should be retained? Which should be retired or replaced with outsourcing or new systems? Where do I need TSAs (acquisitions)? Where can I offer TSAs (divestitures)? Which systems need to be changed, reengineered, or reverse-engineered? Or is the answer not to integrate, but rather to maintain multiple systems? Do we have the scalable, service-based architecture needed to support our future business model? Does our organizational model embrace change? Do we have the transformational capabilities to address this transition, avoid negative disruption, and realize the value this deal is intended to achieve? Those relationships typically span four key areas: Strategic business advice basically how to design a new, combined supply chain or manufacturing network IT advice such as how to design IT infrastructure and application landscapes for combined companies Project management which includes office services Implementation and execution support essentially those services that augment the actual transformation Potential partners in each of these four categories offer specific capabilities and solutions. For a CIO, the key is to understand the pharmaceutical firm s internal capabilities, the demands of a given M&A transition, and how best to match those requirements to meet the company s near- and long-term objectives. Not surprisingly, many companies choose to work with a top-tier IT partner to analyze their current situation, and to establish a solid foundation for a new consolidated or separated enterprise. Such a partner can bring globally consistent processes and methodologies to improve the speed, agility, and long-term success of these crucial transformations. When evaluating potential IT partners, life sciences organizations may wish to consider allies that combine pharmaceutical-specific experience with broad M&A capabilities. This combination includes: IT-related advisory and consultative services Program management office services to support merger, acquisition, and divestiture efforts IT integration and separation services, including application, service desk, hosting, storage, networking, and ongoing support services Conclusion M&A and divestitures can yield very positive results in the pharmaceutical sector including cost reductions, efficiency gains, and access to new drugs or markets. Yet all too often, shareholder value is lost when companies fail to efficiently integrate their cultures, operations, and technologies. The early focus is naturally on operations, financials, and cultural change management. Forward-looking companies, however, should consider information technology early in the integration or separation process. DXC recommends a logical, proven approach to M&A that is based on careful strategic consideration, detailed planning, and close attention to integration/separation. This model starts with the assessment and rationalization of existing IT systems. It leverages a scalable, service-based architecture to deliver the needed agility and efficiencies. Finally, companies must gain the transformational expertise needed to handle complex transitions with as little disruption as possible. By fully addressing these integration or separation requirements from the smallest details to the enterprise-level strategies pharmaceutical firms can realize the full value of the next major transaction. 6

7 Author Steve Figman, Business Development, Americas Healthcare & Life Sciences Steve Figman is a Healthcare & Life Sciences business development executive for DXC, focused on identifying, recommending, and facilitating decision-making for enterprise-wide growth, transformational vision, and leadership strategies. He uses practical innovation and thought leadership to address strategic, high-impact business issues, and leverages DXC s expertise and intellectual property assets to drive alignment with future trends in business and technology. Through his 20+ years in healthcare leadership roles, he has worked on some of the largest and most profitable brands in U.S. healthcare, including Johnson & Johnson, Wyeth, BSN Medical, and Premier, Inc. Figman s extensive experience fueling growth and profitability for many industry-leading brands includes business development and strategic alliances, product positioning, sales direction, competitive intelligence, contracting, and marketing communications. Learn more at [ life_science] About DXC DXC Technology (NYSE: DXC) is the world s leading independent, end-to-end IT services company, helping clients harness the power of innovation to thrive on change. Created by the merger of CSC and the Enterprise Services business of Hewlett Packard Enterprise, DXC Technology serves nearly 6,000 private and public sector clients across 70 countries. The company s technology independence, global talent and extensive partner network combine to deliver powerful next-generation IT services and solutions. DXC Technology is recognized among the best corporate citizens globally. For more information, visit DXC Technology Company. All rights reserved. DXC_4AA5-5815ENW. March 2017